Sierra Metals (NYSE:SMTS, TSX:SMT) released solid Q1-2021 results despite the headwinds of COVID-19, the company delivered strong double digit revenue and EBITDA growth year-over-year.
Sierra Metals: Attractive Commodity Exposure and Best-in-Class Costs
Sierra’s operations consist of 3 mines in 2 attractive mining jurisdictions:
- Mexico: Bolivar Mine (copper) and Cusi Mine (silver)
- Peru: Yauricocha Mine (copper/zinc)
Metals that provide inflation protection versus inflation made up 63% of total revenue for the quarter: copper, (31%), silver (26%) and gold (6%).
The company’s flagship mines, Yauricocha and Bolivar, have best-in-class production costs versus global copper mining peers. Both mines sit at the 31st percentile of the global copper industry cash cost curve.
Lower production costs equal more potential for cashflow.
Q1 2021 Operational Results
Sierra Metals delivered solid production and profitability results in Q1 despite a challenging COVID-19 operational environment.
- Revenue for the quarter came in at $69.6 million, an increase of 25% from the previous year.
- EBITDA rose 57% from $15.7 million in Q1-2020 to $25.6 million in Q1-2021
- On a copper equivalent basis, production fell -18% to 25.5 million pounds – due to direct and indirect challenges faced from COVID-19.
Looking ahead to the remainder of 2021 the company has provided investors the following outlook:
- Yauricocha Mine: Targeting a 20% increase of throughput at the Yarichocha mine to 3,600 tons per day and the completion of the prefeasibility study to expand throughput to 5,500 tons per day by 2024.
- Bolivar Mine: Targeting 5,000 tons per day throughput this year and the completion of the prefeasibility study to expand throughput to 10,000 tons per day by 2024.
- Cusi Mine: Targeting 1,100 tons per day this year as the company accesses higher grade economic ore.
Strategic Asset Review
Sierra Metals is currently conducting a formal strategic asset review that will explore the sale of part or all of the company, a merger or other strategic transactions.
The company has engaged CIBC World Markets to assist the Board of Directors in its review of strategic alternatives. The strategic evaluation has the full support of its largest shareholder, Arias Resourced Capital, which owns 52.25% of shares outstanding (source: Bloomberg).
Famed billionaire investor Lee Cooperman from Omega Advisors is now the 3rd largest shareholder of the company with a 5% stake. His stake in Sierra is part of his strategy to hedge inflationary risk in his portfolio.
Sierra Versus Commodity Peers
On March 17th Capital 10X published a comprehensive analysis of the copper market and stocks of copper producers.
Looking at updated valuation metrics (Bloomberg consensus, May 10th, 2021), Sierra Metals trades at a third of the valuation multiple relative to its copper peers across all metrics.
- 68% discount on forward price-to-cashflow
- 63% discount on forward EV-to-EBITDA
- 63% discount on forward price-to-sales
Sierra Metals is a market awareness client of Capital 10X.
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